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Q1) Dempere Imports Company's EPS in 2009 was $2.82, and in 2004 it was $1.65. Company's payout ratio is 30%, and stock is at present valued at $41.50. Flotation costs for new equity will be 15%. Net income in 2010 is expected to be $15 million. Market-value weights of firm's debt and equity are 40% and 60%, respectively.

a) Based on five-year track record, what is Dempere's EPS growth rate? What will the dividend be in 2010?

b) Compute the firm's cost of retained earnings and the cost of new common equity.

c) If Dempere's after-tax cost of debt is 8%, compute WACC with retained earnings? With new common equity?

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  • Category:- Accounting Basics
  • Reference No.:- M917306

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